Flipkart found guilty of FEMA violations: INR 1,000 cr. may be the penalty

The e-commerce retail giant Flipkart got under the lenses of Enforcement Directorate. According to the news published in Economics Times the WS-Retail has investments from companies overseas. The ED Bangalore team has confirmed Flipkart to be guilty and ready to send a show cause notice.

Flipkart recently came into news after bagging a very huge amount of funding after which the founders got comparable with Infosys founders.

The worse news for investors is that the newly acquired Myntra.com is also on the radar of ED for the similar reasons but according to Economics Times the probe is in it’s initial stage.

Let see what “Foreign Exchange Management Act (FEMA)” is.

FEMA is Indian parliamentary law “to consolidate and amend the law relating to foreign exchange with the objective of facilitating external trade and payments and for promoting the orderly development and maintenance of foreign exchange market in India.” This law came into existence since 29th December 1999 replacing “Foreign Exchange Regulatory Act (FERA)”.

Unlike other laws where everything is permitted unless specifically prohibited, under this act everything was prohibited unless specifically permitted. Hence the tenor and tone of the Act was very drastic. It required imprisonment even for minor offences. Under FERA a person was presumed guilty unless he proved himself innocent, whereas under other laws a person is presumed innocent unless he is proven guilty.

Main Features of FEMA

Activities such as payments made to any person outside India or receipts from them, along with the deals in foreign exchange and foreign security is restricted. It is FEMA that gives the central government the power to impose the restrictions.

Restrictions are imposed on residents of India who carry out transactions in foreign exchange, foreign security or who own or hold immovable property abroad.

Without general or specific permission of the MA restricts the transactions involving foreign exchange or foreign security and payments from outside the country to India – the transactions should be made only through an authorised person.

Deals in foreign exchange under the current account by an authorised person can be restricted by the Central Government, based on public interest.

Although selling or drawing of foreign exchange is done through an authorised person, the RBI is empowered by this Act to subject the capital account transactions to a number of restrictions.

Residents of India will be permitted to carry out transactions in foreign exchange, foreign security or to own or hold immovable property abroad if the currency, security or property was owned or acquired when he/she was living outside India, or when it was inherited by him/her from someone living outside India.

Exporters are needed to furnish their export details to RBI. To ensure that the transactions are carried out properly, RBI may ask the exporters to comply to its necessary requirements.

Mohit Bansal@ISM
Mohit Bansal(23) is B.Tech in Electronics and Communication Engineering from Indian School of Mines, Dhanbad, India. He has interest in business and entrepreneurship and has published couple of research articles. He is also associated with various NGOs. He is with Techaloo when it was just in concept stage. The Techaloo site was not existing even then.
Currently Mohit is working with Mu Sigma as a Business Analyst Profile.